NE Life & Health flashcards

32 cards. Read the term and the definition here. The deck at the top of this page is optional.

Certificate of authority

A license issued by a state insurance department that authorizes an insurer to transact insurance business in that state; insurers must hold one in every state where they operate.

Foreign insurer

An insurer incorporated under the laws of another state or U.S. territory rather than this state. It must hold a certificate of authority to do business here.

Rebating

An illegal unfair trade practice in which a producer offers part of a commission, or any other inducement not stated in the policy, to persuade a buyer to purchase insurance.

Insurable risk

A pure risk whose losses are accidental, definite and measurable, statistically predictable, not catastrophic, and spread across many similar exposure units.

Adverse selection

The tendency of people with higher-than-average risk to seek or keep insurance, which pushes actual losses above the insurer's projections and makes underwriting necessary.

Contract of adhesion

A contract written by one party, the insurer, and accepted or rejected by the other; because the insured has no bargaining power, ambiguities are interpreted in the insured's favor.

Conditional receipt

A receipt giving coverage as of the application date only if the premium is paid and the proposed insured proves insurable under the insurer's underwriting rules.

Modified endowment contract

A life policy that fails the 7-pay test; withdrawals and policy loans are taxed income-first and may incur a 10% penalty before age 59½.

Per stirpes

A beneficiary designation under which a deceased beneficiary's share passes to that beneficiary's living descendants rather than to the remaining primary beneficiaries.

Universal life insurance

Permanent coverage with flexible premiums and an adjustable death benefit; cash value earns current interest with a guaranteed minimum and is reduced monthly by cost of insurance.

Variable life insurance

Permanent coverage whose cash value is invested in separate account subaccounts. The owner bears investment risk, value is not guaranteed, and a securities license is also required.

Convertible term

A term policy provision allowing the insured to exchange coverage for a permanent policy without providing evidence of insurability, usually at the original or attained age rate.

Survivorship life policy

A second-to-die policy insuring two people that pays the face amount when the last insured dies; it is used to fund estate taxes and other estate planning needs.

Incontestability clause

A provision stating that after the policy has been in force for two years the insurer cannot contest the contract or deny a claim because of misstatements on the application.

Extended term option

A nonforfeiture option that uses the policy's net cash value as a single premium to buy term insurance equal to the face amount for whatever period that premium will purchase.

Waiver of premium rider

A rider that waives premiums while the insured is totally disabled, typically after a six-month waiting period, and usually continues the waiver until age 65.

Exclusion ratio

The fraction of each annuity payment that is a tax-free return of the owner's after-tax investment, calculated as investment in the contract divided by expected total return.

Immediate annuity

An annuity bought with a single premium in which income payments begin within one payment interval, usually one month, after the purchase date.

Surrender charge

A fee imposed by an insurer when a deferred annuity is surrendered or withdrawn during the early contract years; it typically declines to zero over 7 to 10 years.

Health maintenance organization

A managed care plan providing services through its own network, requiring a primary care physician to coordinate care, and generally paying nothing for non-emergency out-of-network care.

Coinsurance

The percentage of covered medical expenses, after the deductible is satisfied, that the insured and the insurer share, such as an 80/20 split until the out-of-pocket maximum is reached.

Guaranteed renewable

A health policy the insurer must renew as long as premiums are paid; the insurer may not cancel an individual but may increase premiums for an entire class of policyholders.

Grace period

The period after a premium due date during which health coverage stays in force: 7 days for weekly, 10 days for monthly, and 31 days for other premium modes.

Change of occupation provision

A health policy provision that reduces benefits, usually in proportion to the difference in premium rates, if the insured switches to a more hazardous occupation.

Time limit on certain defenses

A provision barring the insurer, after two or three years, from denying a claim or rescinding coverage for misstatements on the application, except for fraud.

Elimination period

The waiting period that begins when a disability starts and must pass before disability income benefits become payable; it works like a time deductible.

Residual disability

A disability income benefit that pays when the insured returns to work but earns less because of the disability; the payment is proportional to the lost income.

Own occupation

A definition of total disability under which the insured qualifies if unable to perform the duties of their own specific occupation, usually for an initial benefit period.

COBRA

A federal law requiring employers with 20 or more employees to let qualified beneficiaries continue group health coverage after a qualifying event, generally for 18 months.

Imputed income

The taxable value of employer-provided group term life insurance above $50,000 of coverage, calculated with IRS Table I rates and reported on the employee's W-2.

Section 125 cafeteria plan

An employer plan letting employees pay health insurance premiums and other qualified benefits with pre-tax salary reductions, lowering both income and payroll taxes.

Accelerated death benefit

A policy feature that lets a terminally or chronically ill insured receive part of the face amount early; proceeds are generally free of federal income tax.